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  • Elizabeth A. McMorrow

FATCA: IRS Gives FFIs US TIN Reprieve

The U.S. Internal Revenue Service (IRS) recently issued Notice 2023-11 which will be in Internal Revenue Bulletin (IRB) 2023-3, dated January 17, 2023. The IRS provided procedures by which a Foreign Financial Institution (FFI) can remain compliant despite not obtaining U.S. tax identification numbers (TINs) from certain account holders who are U.S. Persons under FATCA.

What Is the Reprieve?

The IRS will not determine an FFI is significantly non-compliant with the FFI’s FATCA reporting obligations due to the FFI’s failure to report U.S. TINs for reporting years 2022 (due in 2023), 2023 (due in 2024) and 2024 (due in 2025).

Which Accounts?

The reprieve applies to preexisting accounts in certain Model 1 Intergovernmental Agreement (IGA) jurisdictions. A preexisting account is an account maintained as of the determination date specified in the applicable Model 1 IGA. The reprieve does not apply to new accounts including new accounts held by account holders of preexisting accounts.

Which Jurisdictions?

The reprieve is limited to Model 1 FFIs which are in Model 1 IGA jurisdictions where the jurisdiction’s government makes a good faith effort to:

  • Encourage U.S. citizens resident in the jurisdiction to provide U.S. TINs to FFIs when requested;

  • Take measures to enforce compliance by reporting Model 1 FFIs identified by the IRS as potentially non-compliant;

  • Encourage FFIs located in a Model 1 IGA jurisdiction to not discriminate against U.S. citizens that do provide a U.S. TIN; and

  • If notified by the IRS, take steps with the IRS to implement an IGA, amend an Annex II to an IGA, or exchange country-by-country information.

The IRS is considering the above requirements to be satisfied for all Model 1 IGA jurisdictions for reporting on calendar year 2022. For reporting Y2023 forward, the Model 1 IGA jurisdiction must make good faith efforts by the date that is nine months after the end of the calendar year to which the information relates.

FFI Requirements

To take advantage of the IRS reprieve, the reporting Model 1 FFI must comply with the following tasks for each of the FFI’s U.S. reportable accounts (including new accounts) that has a missing required U.S. TIN:

  • Obtain and report the date of birth of each account holder that is an individual and controlling person whose U.S. TIN is not reported.

  • Starting in Y2023, annually request from each account holder any missing required U.S. TIN by:

  • Starting in Y2023, annually search electronically searchable data maintained by the reporting Model 1 FFI for any missing required U.S. TINs.

  • Report accurate IRS TIN Code for each account that is missing a required U.S. TIN.

    • Y2022 reporting: use either the TIN Codes issued by the IRS in May 2021 or updated TIN Codes issued by the IRS in early 2023.

    • Y2023 and Y2024 reporting: use the most recent TIN Codes issued by the IRS.

  • Until the end of Y2028, retain records of the policies and procedures adopted to satisfy the reprieve requirements and documentation that those policies and procedures were followed to establish its compliance.

Impact of Noncompliance

FATCA generally requires withholding agents to withhold 30 percent tax on certain U.S. source payments to FFIs that do not agree to report information to the IRS. However, a Model 1 IGA exempts a reporting Model 1 FFI from FATCA withholding tax on an account held by a recalcitrant account holder or to close such account if the IRS receives certain account information specified in the Model 1 IGA. This information includes the U.S. TIN of each specified U.S. person that is an account holder and, in the case of a non-U.S. entity with one or more specified U.S. persons who are controlling persons, the U.S. TIN of each controlling person for its U.S. reportable accounts.

If a reporting Model 1 FFI fails to report required U.S. TINs, the IRS may notify the Model 1 IGA jurisdiction there is significant non-compliance with respect to the reporting Model 1 FFI. If the reporting Model 1 FFI remains non-compliant for 18 months after the notification, the IRS may treat the FFI as a nonparticipating financial institution (NPFFI or NPFI) that is subject to 30 percent FATCA withholding.

FFIs and U.S. Persons Face Obstacles

The IRS established the reprieve in reaction to Model 1 IGA jurisdictions, FFIs, and U.S. citizens expressing concern to the U.S. Government regarding:

  • FFIs refusing to provide accounts to U.S. citizens resident in the FFI’s jurisdiction.

  • FFIs providing access to accounts on less favorable terms than apply to other account holders even if the U.S. citizen provides a U.S. TIN.

  • FFIs closing bank accounts of U.S. citizens who failed to provide a required U.S. TIN including accounts of U.S. citizens resident outside the U.S.

  • FFIs believing if they do not close bank accounts of U.S. citizens who have failed to provide a U.S. TIN, the FFI will be treated as in significant non-compliance with their FATCA obligations.

  • Model 1 IGA jurisdictions worried whether FFIs unable to close certain accounts may increase the risk the FFI will be found to be in significant non-compliance with its FATCA obligations.

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